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Image: TFL

“Product counterfeiting is an enormous global problem, and brand dilution is just the tip of the consequence iceberg,” says Entrupy in its first-ever “State of the Fake” report. The New York-based tech company, which describes itself as “the world’s first and only on-demand authentication solution for handbags,” asserts that “the infiltration of counterfeit products has been shown to create a massive drain on the global economy [by] displacing billions of dollars in legitimate business activity, which then reduces tax revenues for public services, investment, and innovation.”

In addition to the “criminality” at play, Entrupy notes that the exposure of consumers “to potentially dangerous and ineffective products” in woven into the fabric of the $1.2-plus trillion global counterfeit trade, which is why brands like Balenciaga, Burberry, Celine, Chanel, Goyard, Gucci, Hermès, and Louis Vuitton, among others, and “hundreds of secondary retailers and marketplaces around the world” look to it to help weed out counterfeit goods from the market.

By way of a “handheld scanner and accompanying app that guides the user through the process of collecting microscopic images from different area of the item,” and then putting those images through “customized deep learning algorithms that have been trained with Entrupy’s proprietary database,” Entrupy’s system can – within seconds – determine whether a bag is “Authentic” or on the other hand, “Unidentified.”

Looking to the data it collected over the past year, Entrupy found that “in 2018, the vast majority – 90 percent – of items scanned by business customers were verified as authentic,” up from 85 percent for 2017.

As for the brands whose bags most frequently turned up as potentially fake – or “Unidentified” in Entrupy’s language – they are: Goyard (31% of bags of authenticated were “Unidentified”), Hermès (28%), Celine (21%), Balenciaga (21%), Fendi (18%), Dior (17%), Chloe (15%), Saint Laurent (14%), Chanel (11%), Gucci (10%), Prada (10%), Louis Vuitton (8%), Burberry (6%), Coach (5%), and Bottega Veneta (3%).

According to Entrupy, the number of identified items for each brand is “not necessarily a function of the number of fakes in the market,” which is clear given that the company states – and it is generally understood that – Louis Vuitton is one of the most frequently counterfeited brands in the world, and yet, it lands quite low on the list, with just 8 percent of the bags checked by Entrupy being given an “Unidentified” status. This is compared to Goyard, for instance, for which 31 percent of bags were “Unidentified.”

What the company is willing to confirm is that the percentage of “Unidentified” bags is likely driven by a handful of factors, such as demand and availability of the real thing. “The high proportion of unidentified Goyard and Hermès items is likely a result of the high demand for [bags]” from these brands, Entrupy states in  its report. More than that, it notes that market availability impacts the production of fakes. “Brands such as Goyard and Hermès that historically ensure there is a limited supply of their products have a higher proportion of ‘Unidentified’ because there are simply fewer ‘Authentic’ ones in the secondary market.”

A discussion of the role of the secondary market is a critical one given the sheer size of the $25 billion luxury resale market and the rapid growth it is experiencing. Entrupy makes an interesting assertion in its report, stating that counterfeiters to some extent, at least, are motivated by the secondary market. To be exact, Entrupy states, “Counterfeiters are more incentivized to produce fake versions of products with high resale values, enabling them to get a larger return on their investment.”

By tying the counterfeit-maker’s own return on investment directly to the resale market, such a statement assumes that the fake bags at issue are initially entering the market by way of resale sites (otherwise there would not be a tie between the manufacturer of the fake bag and the money earned from the resale sale).

It is interesting to consider the possibility that counterfeiters are directly profiting from the resale market – i.e., are presenting their products as pre-owned and feeding them to consumers in any sizable quantities through resale sites – as that would represent a marked shift from the more traditional method of counterfeit-sellers hosting their own sites (the very ones that fashion brands are consistently seeking to take down by way of UDRP proceedings and/or litigation) and offering products that way, and/or offering them by way of marketplaces, such as Amazon.

That potential change in distribution is certainly something to ponder even if the risk to consumers and brands, alike, is low. As Entrupy also notes in its report, the risk of sourcing counterfeits in the e-commerce resale market is “low,” as opposed to consumer-to-consumer marketplaces like eBay, where the risk is the “highest.”